Walgreens to Close Hundreds of Stores Amid Shift in Business Strategy

As dawn of a new business strategy approaches, Walgreens is charting a potentially drastic course correction. According to CEO Tim Wentworth, this course of action may entail closing hundreds of additional physical stores across the United States over the next three years. These cost-cutting measures spring from the identification of around 2,100 stores – roughly 25% of the total 8,600 Walgreens pharmacies in the U.S – as underperforming entities within the corporate economic ecosystem.

Mr. Wentworth elucidated his plans at a recent meeting with financial analysts, stating that “changes are imminent” and that a “significant portion” of these underperforming stores could face closure if significant improvements are not made. The company, a seasoned veteran in streamlining its operations, has closed approximately 2,000 locations over the past decade. Despite this, Walgreens maintains a robust international presence, with an impressive portfolio of 12,500 locations spanning the globe.

As Wentworth puts it, the crux of the Walgreens crisis rests on the untenable nature of the current pharmacy model, a sentiment echoed by other industry leaders. He believes a paradigm shift in market approach is overdue. This shift looks to tackle increasing operational costs, uncertain economic environment, and years of minimal returns on prescription sales that plague such businesses.

Competitors CVS and Rite Aid share Walgreens’ tribulations. The latter is currently entangled in bankruptcy reorganization. These erstwhile prosperous pharmaceutical retailers now grapple with rising challenges, their former monopoly threatened by discount retailers like Walmart and Amazon. Inflation’s inexorable rise has turned consumers hyper-aware of their spending, with general goods purchases at pharmacies increasingly frowned upon due to their steep prices compared to their discount rivals.

The tide hasn’t been kind to Walgreens’ ancillary healthcare provider ambitions either. The pharmaceutical giant began shuttering the VillageMD primary care clinics it had begun installing adjunct to its stores. This major policy shift is a stark contrast to the aggressive expansion plans enacted under former CEO Rosalind Brewer’s charge. The retrofit saw around 160 of these clinics permanently closed, their operations accused of burning through cash and accumulating losses.

Not all is grim, however, as CEO Tim Wentworth promises a “clearer path to profitability” for these primary care clinics. More encouraging news sees Walgreens in active negotiations with pharmacy benefit managers to hammer out fairer compensation rates, thus ensuring the viability of crucial business compartments such as specialty pharmacies that offer invaluable assistance to individuals grappling with chronic and complex medical conditions.

Despite these glimmers of hope, Walgreens Boots Alliance Inc. conceded a fall in expected earnings accompanied by a dialing back of their annual forecast. Their recent fiscal third-quarter report painted a somber picture – a mere $344 million earnings, culminating in adjusted results of just 63 cents per share and a 3% rise in revenue to $36.35 billion. The figures fell short of the anticipated earnings of 68 cents per share with $35.9 billion revenue.

In light of these shortcomings, the pharmaceutical giant predicts an adjusted earnings range of $2.80 to $2.95 for the fiscal year ending in August. It’s a substantial downgrade from their March estimated earnings of $3.20 to $3.35 per share. The financial community is holding out for $3.20 per share, with Leerink Partners analyst, Michael Cherny, expressing little surprise at the downward revisions, viewing it as the next phase of Walgreens’ recovery.

Investors, however, were taken aback by the grim financial report. Walgreens shares spiraled downward by a record 22%, ending Thursday at a meager $12.19 per share. It’s a continuation of a worrisome trend, as Walgreens shares have already halved in value this year, instigating a clamor for corrective measures from all quarters.